SM Energy (SM) and Civitas Resources (CIVI) will merge in a $12.8B deal including debt, creating a formidable E&P company in the Permian, Denver-Julesburg and Uinta basins.
The merger, announced Nov. 3, creates a firm with 823,000 net acres and 1,476 MMboe of estimated proved reserves, transforming SM into a top 10 independent producer. The companies together expect to generate $1.4B in free cash flow this year.
Recent upstream mergers have mostly resulted in reduced drilling as companies prioritize cost savings, and SM/CIVI will follow a similar path. SM said it expects to save at least $200MM, and up to $300MM annually through lower overhead and operational synergies. In an update Monday (Nov. 17), the companies said they will also target $1B in divestitures once the merger closes.
In 2025, CIVI and SM have averaged 13 rigs across their operations in the Permian, Uinta, Eagle Ford and DJ basins. Their drilling programs have eased with lower oil prices, from an average of 14.6 rigs combined in 1Q25 to 12 rigs in 3Q25, according to allocations in East Daley Analytics’ Rig Activity Tracker (see figure). SM and CIVI stated in a joint 3Q earnings call that production will slow down in 2026 if oil prices fall below their $65/bbl WTI goal for net leverage, as the merged company focuses on maximizing cash flow and reducing debt.
The producers’ wide reach gives them plenty of options to pare back. The Permian, the only basin where CIVI and SM have overlap, is likely to see reduced rigs from the combination. In the Nov. 17 update, the producers said they will take several measures to lower costs in their Permian operations, including by optimizing rig and frac fleets. East Daley expects CIVI’s drilling program in the Denver-Julesburg is also vulnerable to cuts as the companies high-grade drilling targets.
East Daley clients can evaluate the midstream risks from the SM/CIVI merger using the “Producer to System Analysis” dashboard in Energy Data Studio. Williams (WMB), Targa Resources (TRGP) and Kinder Morgan (KMI) have the largest G&P exposure to the merged producer (see figure above from Energy Data Studio). Of the three, TRGP has the largest combined exposure on its West Texas, Midland and Lucid systems. In the DJ, WMB primarily services CIVI on its Discovery system and would be most vulnerable if the merged producer pulls back.
SM and CIVI expect to close the merger in 1Q26. The combined firm will keep the SM Energy name and ticker with headquarters in Denver, CO. – Alec Gravelle Tickers: CIVI, KMI, SM, TRGP, WMB.
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